2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver

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2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

2007 Annual Meeting ● Assemblée annuelle 2007

Vancouver

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

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Update on Mortality Improvement Sub-committee

• Goal: Propose mortality improvement basis for annuity and life insurance valuation

• Sub-Committee Members: – Marc-Andre Belzil, Jacques Boudreau,

Edward Gibson, Claude Normand, Helene Pouliot, Les Rehbeli, Mario Robitaille

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Update on Mortality Improvement Sub-committee

• Current draft of proposal:– Best estimate improvement scales would be

the same for life insurance and for annuity business

– Mortality Improvement assumption would have its own MfAD (insurance and annuity MfADs would be in opposite directions, special consideration for death supported insurance policies)

– Mortality improvement rates based on Hardy’s paper (Data from 1921 to 2002)

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Historical Mortality Improvement Rates: Hardy Study Population Data (1921-2002)Historical Mortality Improvement Rates:

Hardy Study Population Data (1921-2002)

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0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

0 10 20 30 40 50 60 70 80 90

Attained Age

Imp

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Male

Female

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Draft Proposal for Mortality Improvement

• Population data over maximum duration better source than insurance or annuity study data (which are less reliable and have more influences, such as underwriting improvements over time)

• Rates will be the same for males and females (more on this shortly)

• Improvement rates for first 25 years only, then set to 0%

• Introduce concept of “hedge” credit for companies with blends of insurance and annuity business

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Draft Proposal for Mortality Improvement

• Why unisex rates?– Menard/Wade Report released in May

2007– Uses population data – Shows mortality improvement rates

over various time periods– For longer durations (e.g. 70 years)

female rates higher than male rates; for shorter durations (e.g. 10 years) the converse is true

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Historical Mortality Improvement- Males*

Historical Mortality Improvement- Males*

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* Source: Menard/Wade Report

15-6465-89

1931-2001

1966-2001

1991-2001

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

Imp

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Attained Age

Observation Years

1931-2001

1966-2001

1991-2001

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Historical Mortality Improvement- Females*

Historical Mortality Improvement- Females*

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* Source: Menard/Wade Report

15-6465-89

1931-2001

1966-2001

1991-2001

0.0%

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1.0%

1.5%

2.0%

2.5%Im

pro

vem

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Attained Age

Observation Years

1931-2001

1966-2001

1991-2001

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Historical Mortality Improvement Rates: Hardy Study (1921-2002) vs Proposed

Best Estimate

Historical Mortality Improvement Rates: Hardy Study (1921-2002) vs Proposed

Best Estimate

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Proposed

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Mortality Improvement, Menard/Wade 1931-2001 vs Proposed Best EstimateMortality Improvement, Menard/Wade 1931-2001 vs Proposed Best Estimate

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15-64 65-89

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Proposed

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0.0%

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Proposed

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Proposed

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Draft Proposal for Valuation

• Life Insurance mortality improvement:– Maximum improvement rates are equal to

50% of best estimate rates (effectively a 50% MfAD on the improvement rate)

– Maximum duration of improvements is 25 years

– Special consideration for death supported policies

• Annuities mortality improvement– Minimum improvement rates are 150% of

best estimate rates– Minimum duration is 25 years

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Mortality Improvement RatesMortality Improvement Rates20

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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

0 8 16 24 32 40 48 56 64 72 80 88 96

Attained Age

Imp

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tAnnuity Minimum

Insurance Maximum

Proposed Bestestimate

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Annuity Valuation Mortality Improvement Rates

Annuity Valuation Mortality Improvement Rates

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0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

50 55 60 65 70 75 80 85 90 95

Attained Age

Imp

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men

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Male Mod AA

Female Mod AA

ProposedValuation

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Final Comments

• Proposed change for life insurance business would require a change in the Standards of Practice – currently 100% of mortality

improvement must be in MfADs• Proposed change for annuities would

be simpler but sub-committee feels it is better to implement both at the same time, as they are inter-related– therefore unlikely to have any changes

for 2007 valuation

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Final Comments

• Proposed change has had limited review from CLIFR, but has not yet been endorsed and is still in early draft stage

– Comments from the industry are very welcome

• Limited testing (2 to 3 companies) indicates material increases to annuity reserves (3% to 5%) and material decreases to life insurance reserves (1% to 2%, but highly dependent on business mix)

– We invite CIA members to conduct further testing and to send us your results

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Documents

2007 Annual Meeting ● Assemblée annuelle 2007 Vancouver